The diversity of online banking services is steadily growing worldwide. According to Allied Market Research, the global online banking market size reached $11.43 billion in 2019 and is projected to hit $31.81 billion by 2027, growing at a CAGR of 13.6% between 2020 and 2027.
As digital transformation continues to disrupt the financial sector, traditional banks are no longer the only option. A new generation of financial institutions has emerged—Neobanks. These digital-only challengers are rewriting the rules of banking with simplified services, lower costs, and technology-driven innovation.
In this article, we’ll explore what neobanks are, how they operate, why they’ve become so popular, and which of the most well-known neobanks are shaping the industry. We’ll also examine the future prospects of this rapidly growing FinTech phenomenon.
What Are Neobanks?
Neobanks are digital-only banks that operate without physical branches. Sometimes called “challenger banks,” they provide banking services entirely through mobile apps and web platforms. Unlike traditional banks, they don’t require customers to visit a physical branch, wait in line, or navigate layers of bureaucracy to manage their finances.
Key features of neobanks include:
Mobile and web-first operations – All services are available through apps and digital platforms.
Limited physical presence – No branches, which significantly reduces costs.
Streamlined offerings – Checking accounts, savings, payments, transfers, peer-to-peer (P2P) transactions, and in some cases, credit and lending.
Partnership models – Some neobanks collaborate with traditional banks or third-party financial institutions to expand services, such as virtual cards, insurance, or investment products.
Essentially, neobanks combine FinTech innovation with customer-centric design to make banking more accessible, affordable, and user-friendly.
How Do Neobanks Work?
The business model of neobanks differs significantly from that of conventional banks. Here’s how:
1. Revenue Streams
Interchange fees: A significant portion of neobanks’ revenue comes from interchange—fees merchants pay when customers use debit or credit cards.
ATM charges: Fees from out-of-network ATM use can make up around 20% of revenue.
Premium services: Some neobanks charge for add-on services, such as budgeting tools, international transfers, or investment features.
2. Reduced Operating Costs
Because neobanks are digital-only, they don’t require:
Branch offices
Extensive staff
Expensive equipment or real estate
This lean model enables them to provide lower fees and better rates than traditional banks.
3. Customer Experience
From the customer’s perspective, neobanks operate just like online banking apps. Signing up is fast, requiring only identity verification through digital KYC processes. Once onboarded, users can manage accounts, transfer money, and make payments with minimal friction.
This emphasis on simplicity and convenience has made neobanks especially appealing to younger, tech-savvy generations and underserved populations without access to conventional banking.
Why Are Neobanks Popular?
The rise of neobanks is not accidental. Several factors contribute to their growing popularity:
1. Convenience
Neobanks eliminate the need for in-person visits. With a smartphone, customers can perform virtually all essential banking activities anytime, anywhere.
2. Financial Inclusion
Millions globally remain “unbanked.” For example, in 2019, 5.4% of U.S. households (around 7.1 million) had no bank account. Neobanks bridge this gap by offering accessible, mobile-first financial solutions.
3. Lower Costs
Minimal overhead allows neobanks to charge lower fees—or none at all—for essential services. Many even provide fee-free accounts, relying on interchange for revenue.
4. Streamlined Processes
Neobanks simplify time-consuming processes. For example, applying for a loan through a neobank often requires just a few clicks, bypassing the paperwork and delays common in traditional banks.
5. Personalization and Transparency
Many neobanks integrate AI and analytics tools to provide customers with personalized financial insights, budgeting tools, and transparent fee structures.
Examples of Popular Neobanks
Neobanks have emerged worldwide, each catering to unique customer needs. Here are three of the most popular challengers:
1. Chime (USA)
Focus: Business and consumer banking
Services: Debit and credit card transactions, cash deposits, direct deposits, fee-free overdrafts
Strengths:
No hidden fees
FDIC-insured
Strong security and fraud protection
Appeal: Its combination of low costs and simplicity has made Chime one of the fastest-growing U.S. neobanks.
2. Nubank (Brazil)
Focus: Personal and business accounts
Services: Digital payments, credit/debit cards, personal loans, insurance
Value: Reached $45 billion valuation in 2021
Regulation: Licensed by the Brazilian Central Bank
Appeal: Offers accessible services to millions of underbanked individuals in Brazil, expanding financial inclusion in Latin America.
3. Revolut (UK)
Focus: International banking and FinTech services
Services: Currency exchange, international money transfers, UK/euro accounts, budgeting tools
Users: 15.5 million as of mid-2021, with over 1 million active daily
Appeal: Popular among travelers and international workers for its low-cost global transactions.
The Future of Neobanks
The global neobank market is projected to grow significantly over the next decade. Several trends will likely shape the sector:
Increased Competition
More startups and even traditional banks are launching digital-only platforms, intensifying the competitive landscape.Expanded Service Offerings
From wealth management to cryptocurrency wallets, neobanks are broadening their product suites to meet customer demands.AI and Data-Driven Banking
Predictive analytics, AI chatbots, and automated financial coaching will enhance personalization and engagement.Stricter Regulation
As neobanks scale, regulators may impose stricter requirements, potentially narrowing the gap between them and traditional banks.Greater Adoption in Emerging Markets
Regions like Africa, South Asia, and Latin America are expected to witness explosive growth, as neobanks provide affordable financial access to the unbanked.
Bottom Line
Neobanks are more than just a trend—they’re reshaping the global financial landscape. By eliminating physical branches, reducing costs, and delivering user-friendly mobile experiences, they’ve proven especially valuable to tech-savvy generations and underserved populations.
With rising popularity, however, comes competition. To succeed, neobanks must continually innovate and provide secure, high-quality services. For businesses planning to launch their own challenger banks, partnering with an experienced FinTech development company is essential.
At Progressive Robot, we specialize in building robust, scalable neobank applications tailored to your business needs. From mobile app development to secure integrations, our solutions empower clients to compete in the digital banking revolution.